Revenue & Customs needs better in-house skills to cope when its current £7.9bn IT contract expires in 2017, the spending watchdog has said.

The National Audit Office said the tax authorities needed more expertise to challenge suppliers over their performance and value for money.

It said the Aspire contract had brought benefits but contractors had made much larger profits than envisaged.

Revenue & Customs said it had become "less dependent" on outside knowledge.

Aspire is the government's largest IT project, with expenditure of £7.9bn between July 2004 and March 2014.

Under a contract agreed by the last Labour government, French IT firm Capgemini and its subcontractors maintain and operate Revenue & Customs (HMRC) tax systems as well as providing other ICT services such as computers, telephony, printing and networking.

'Too accommodating'

In its first review of the contract for eight years, the NAO said it had helped improve the agency's operational capability, enabling more tax and VAT returns to be submitted online and reducing fraud and error.

While the contract had helped bring in higher tax yields and deliver significant cost savings, it said, the tax authorities had been "overly dependent" on the technical capability of its suppliers, limiting their ability to manage the contract and secure commercial benefits.

It suggested there was evidence that HMRC's relationship with Capgemini and other firms had become "too accommodating" and had "ceased to offer performance challenge or to create price tension".

It said Capgemini and its major subcontractors, including Fujitsu, had made £1.2bn in total profits from the contract so far, double the level that had been modelled in 2004.

The suppliers' profit margins, while not out of line with the industry average, were higher than anticipated as the contract had been extended and more work awarded, it said.

New model

While acknowledging that steps had been taken to build up HMRC's internal IT resources, such as the hiring of a new digital director, it said there were still "significant gaps" in its expertise.

Since coming to power in 2010, the coalition government has insisted that Whitehall departments work with a wide range of contractors to drive competition and innovation and that contracts were not automatically extended.

The NAO said the Aspire contract was "no longer consistent" with this model, but while HMRC and Capgemini had agreed to make changes to the contract in 2012, it warned that there had been "limited success" so far.

It said HMRC faced a "considerable challenge" in reforming the contract while also developing a successor programme from 2017 that would "modernise and digitise" tax-collection systems while also ensuring value for money and guaranteeing levels of service to the public.

"HMRC faced complex, long-term technology challenges, and Aspire provided an appropriate means of working through them and limiting risk," said Amyas Morse, the head of the NAO.

"However, there has been a lack of rigour in HMRC's commercial management of the contract. It is essential in any contract that the client retains the independent expertise to challenge the supplier."

'Depressing'

Labour MP Margaret Hodge, who chairs the cross-party Commons Public Accounts Committee, said the handling of the IT contract had been "unacceptably poor".

"It is deeply depressing that once again a government contract has proved better value for the private companies involved than for the taxpayer," she said.

HMRC said Aspire was one of the largest outsourced contracts in the world and had helped to generate tax yields of more than £500bn to the Exchequer last year while providing a range of other services.

"The NAO recognises the progress that HMRC has made over the last two years in developing in-house technical skills, so that we are less dependent on external suppliers," a spokesman said.

"For instance, we recently opened a new digital delivery centre in Newcastle as part of our digital transformation programme.

"We will continue to improve the performance of the contract over the next three years."

West Texas Intermediate crude rose to the highest level in 18 months on speculation that tension in Syria will disrupt Middle East supplies.

Prices gained 2.9 percent as Foreign Minister Walid al-Muallem said that Syria’s defenses will “surprise” the world should the U.S. and its allies attempt military strikes. Western powers told the Syrian opposition to expect a strike against President Bashar al-Assad’s forces within days, Reuters reported, citing sources who attended a meeting.

“The geopolitical tension in Syria certainly escalated one notch higher and it’s a significant notch,” said Harry Tchilinguirian, BNP Paribas SA’s London-based head of commodity markets strategy. “It’s the implication of what a broader conflict in Syria would mean to key suppliers in that region. The market simply positioned itself long and waited for the next turn of events.”

WTI for October delivery climbed $3.09 to $109.01 a barrel on the New York Mercantile Exchange. It was the highest settlement since Feb. 24, 2012, and the largest percentage gain since May 2. Trading was 20 percent above the 100-day average for the time of day at 2:38 p.m.

Prices were little changed after the American Petroleum Institute reported U.S. crude inventories increased 2.47 million barrels last week. The October contract increased $2.97, or 2.8 percent, to $108.89 a barrel in electronic trading at 4:36 p.m. It traded at $108.91 before the report was released at 4:30 p.m.

‘Hearing Drums’

Brent for October settlement increased $3.63, or 3.3 percent, to $114.36 on the ICE Futures Europe exchange, a six-month high. Volume was 58 percent above the 100-day average. The European benchmark’s premium to WTI widened to $5.35 from $4.81.

Syria is “hearing the drums of war all around us,” al-Muallem said at a televised news conference in Damascus. The government hasn’t obstructed the United Nations probe into its alleged use of chemical weapons, he said, adding that the U.S. may be carrying out psychological warfare.

Secretary of State John Kerry said yesterday that President Barack Obama will hold Syria accountable for the “indiscriminate slaughter” of its own people with chemical weapons. The evidence is “undeniable” that chemical weapons were used against residents of a Damascus suburb last week and that President Bashar al-Assad’s regime has the toxic weapons and the ability to deploy them, he said.

Obama Administration

The Obama administration is focusing on legal and political justification for a limited military strike as a demonstration of international censure against Syria’s use of chemical weapons, according to a U.S. official. Any action would have a narrow scope aimed at military facilities, other infrastructure and would not target Assad.

“It’s not the question of if they are going to intervene, but just when and how,” said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. “The issue is whether such intervention will pull in neighboring countries.”

Syria borders Iraq and is near Iran, countries that together hold almost a fifth of the output capacity from the Organization of Petroleum Exporting Countries, according to Bloomberg estimates. Syria itself produced just 164,000 barrels a day of the 28.3 million pumped in the Middle East last year, according to BP Plc (BP/)’s Statistical Review of World Energy.

Iran Warning

“Syria itself is not important for oil,” said Soozhana Choi, Deutsche Bank AG’s head of energy research in Washington. “Prices are up because of the broader ramifications of an attack. There are concerns about what Syria’s allies do in response to an attack on the Assad regime. There is a worry that Iran may shelve negotiations over its nuclear program in response.”

Iran, a longtime Syrian ally, warned that a U.S. attack on Syria would drag the whole region into the conflict. Any use of military force in Syria will “engulf the whole region,” Foreign Ministry spokesman Abbas Araghchi told reporters in Tehran today, in televised comments. Russia also warned against an attack on Syria.

“The real risk is if Syria decides to retaliate in any kind of way, or in an even worse scenario, if Iran gets pulled in or Russia gets pulled in or one of Assad’s allies,” Walker said. “We are going to see the price really shoot up.”

Libya Production

WTI also rose as Libya National Oil Corp. Chairman Nuri Berruien said the nation’s oil output may have dropped below 200,000 barrels a day amid protests, the lowest level since the 2011 uprising against Muammar Qaddafi. The North African nation’s export capability has been crippled since members of the Petroleum Facilities Guard seized control of terminals last month to press for better working conditions.

Implied volatility for at-the-money WTI options expiring in October was 25.1 percent, up from 21.2 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 654,184 contracts as of 4:37 p.m. It totaled 297,359 contracts yesterday, the lowest level since Dec. 31 and less than half the three-month average. Open interest was 1.83 million contracts.